April 2012 Issue

In 2012 energy-driven geopolitical considerations are a pronounced, common feature of many countries’ national security policies. It is easy to say, but hard to substantiate, that energy geopolitics is somehow unique to the global security framework in the 21st century.

After all, in the 1950s the energy world was catalyzed by US President Eisenhower’s “atoms for peace” program, was driven by the fear of above ground nuclear testing and the proliferation of nuclear weapons. These developments lead in the 1960s to the nuclear test-ban treaty and the nuclear non proliferation treaty which was opened for signature in 1968.

In the 1970s the Western industrialized world was awakened to its own oil vulnerability by the Arab oil embargo and to the growing acuity of environmental blight after decades of acid rain. Oil vulnerabilities lead to the creation of the International Energy Agency and in the US to passage of the Clean Air Act of 1990 designed initially to specifically reduce sulfur dioxide emissions to 50% of their 1980 emissions in order to curtail acid rain.

The late 1980s saw the collapse of the Soviet empire and its control over Central and Eastern Europe (which had been bolstered by favorable Soviet energy pricing to its Warsaw Pact allies) in return for political subservience; over the last 20 years (from the 1990s onwards) our world has experienced the important emergence of the European Union which got its legs back in the 1950s with the signing of the European Steel and Coal Community and the Euratom treaty both which had energy at their core.

In 2006 and 2009 the world watched, and Europe shuddered, as the Ukraine and the Russian Federation opted for open energy hostility kindled in part by Ukraine’s refusal to give up the old Soviet pricing mechanism for imported gas while the Russians used the carrot of old Soviet energy price distortions to extract strategic concessions from Ukraine over an agreement to extend the Russian fleet’s access to Ukraine’s Black Sea port in Sevastopol. In 2012, the European Union chooses to wage the geopolitical battle over Russian gas dependence in Europe by supporting the construction of new infrastructure across the continent that can diversify markets and reverse gas flows through existent pipelines. There is however a geopolitical price being paid by the EU to the detriment of some of its newer member states for failure to more boldly promote EU security interests.

Worth considering in 2012, is how the perception of resource availability (driven by real or nominal concerns) is a fundamental cornerstone of any discussion regarding energy security and how resources are often portrayed in geopolitical terms.

In real terms, oil prices are impacted by geopolitical tremors every time there is the perception, real or imagined, that supply may be constricted. Oil’s leverage is derived from its virtual monopoly as a transportation fuel and the self-inflicted policy failure of oil consumers to confront this challenge head-on. The day that drivers can conveniently tank-up on something else other than oil (at a competitive price) will be the day instabilities in oil producing states will be reported in the international media with much less fanfare that this news receives today. But we are not there yet.

The domestic agendas of major OPEC producers today appear to driven by the fear of losing control over their own civil societies (the Arab Spring whammy) in spite of their providing citizens increasingly augmented public services and wages garnered from high oil export prices. This is why the nominal new norm for oil is $100 a barrel. Prices are unlikely to fall under this floor price, for any extended period of time, if producers can do anything about it because they need increasingly higher export revenue simply to balance national budgets. Former US Speaker of the House Tip O’Neil’s adage that ‘all politics are local’ turns the global geopolitical stage on its head to focus on what is happening in producers’ backyards. The multitude of civil unrest across the Arab world is indicative of the fate awaiting some OPEC producers if they are unable to address the growing aspirations of their own populations. One has to wonder if there is enough wealth to keep an indefinite lid on this oil barrel?

Iran, on the other hand, derives its influence not from the ‘real’ proven reserves it has on its books but by its threat to shut-down the Persian Gulf transit spigot through which 20% of the world’s oil passes daily. Iran’s oil exports fund its nuclear ambitions paid for with Chinese and Indian dollars and it is from this oily nuclear cocktail that it partially derives its geopolitical influence.

In other historically apolitical regions of the world, like the Arctic, estimated resource reserves are politicizing its melting polar tundra. Usually the dialogue that surrounds Arctic resources has been handled by the region’s littoral states but now China wants to get into the act and is building a deep-water ice-breaker capable of navigating a region where it has no sovereign presence. Energy geopolitics helps explain this development.

One example of turning real energy insecurity into real security has been the United States in leading its own domestic revolution in unconventional oil and gas development. Not only has this augmented US gas reserves by 20% (reserves measured as resources which are commercially viable) but it has provided Europe with access to LNG as an alternative to Russian gas. As a result this largely technologically driven revolution has global geopolitical implications.

In closing, energy geopolitics in the 21st is partially a legacy of how energy has impacted on nations’ domestic or foreign policy agendas over the past 50 years. Energy geopolitics is also driven by real emergent energy concerns. In the current geopolitical environment the political manifestation of energy access and resources may not appear as a first order of magnitude but they are present if one digs beneath the surface. When nations’ choose to conveniently ignore or to under-estimate the energy quotient in their own national or collective security equation, vulnerabilities emerge and risks increase for becoming embroiled in a destructive tug-of-war over resource access and acquisition. Just as real as the threat of conventional war remains for the nation-state so too do unconventional threats challenge peace and security. And if the sustainability of modern life hinges on economics, as many portend, then what is more central to economic output and performance than energy? Ask anyone in the developing world and they’ll answer this for you.

In closing, the Prussian military strategist Carl von Clausewitz is often referred to with (his) phrase, “war is the continuation of politics by other means.” A geopolitical twist on this might be, “energy is the continuation of politics by other means.” So goes the energy-politic nexus in this the first part of the 21st century.

There is nothing more vexing to Americans than paying high gasoline prices. If US unemployment figures decline, sustained high gas prices will perhaps be the greatest threat to President Obama’s re-election campaign. The price of gasoline gnaws away at the income stream of US families forcing them to make hard choices between the goods and services they want versus those they need. Clearly the issue is more easily defined than resolved given its persistent emergence and re-emergence over the past four decades. We’ve asked three noted oil analysts to dissect the gas-price problem for us and to provide probable explanations if not solutions to ending the US oil predicament.

The emerging geopolitics of the Arctic are frequently covered in the mainstream press. Less frequently covered is an analysis of what China’s perspective is on the region's resources and what its strategy is for increasing its influence across the Arctic. China argues that the Arctic is by-and-large part of the global commons and therefore it has as much right to the region, for trade and transit and to the unexplored resources found beneath this polar-cap, as the Arctic’s littoral states. While there is no eminent threat of a clash between littoral and non-littoral Arctic states, understanding China’s perspective and interests is an important step in grasping a better understanding of the country’s foreign policy and unending quest for natural resources.

In 2011 Brazil overtook the United Kingdom as the world’s sixth largest economy as measured by GDP. This has been driven in no small part by an ever expanding domestic oil industry. At a time when global oil markets are expected to remain tight, new supply from Brazil is more than welcome. And in a stunning observation, contributor Aditya Malhotra points out that over the medium term declines in both Mexican and Venezuelan oil production combined may offset by new Brazilian oil output alone. To what extent Brazil can and will meet its own, and world expectations in the oil patch remains to be seen, but at present it clearly seems well on its way to becoming not only a world-class oil player but also South America's dominant naval power with the capability of projecting power where its interests are concerned.

India and Bangladesh each have formidable challenges in providing adequate supplies of fuel and power to their populations. In 2005 they jointly agreed in principle to look at the construction of a Myanmar-Bangladesh-India pipeline to provide their consuming publics natural gas from Myanmar. Concurrent with this the Chinese entered the race for the construction of a Myanmar-China pipeline. Well, due to what contributor Varigonda Kesava Chandra calls the lack of convergence in their national energy security policies India and Bangladesh have found themselves on the short end of the Myanmar pipeline stick.

The present risk premium placed on oil is estimated to be 50 cents per barrel attributed to instabilities in Iran. Last year it was Libya, Nigeria, and Venezuela to name a few of the oil world’s vacation destinations. The risk premium anomaly is hard, if not impossible to measure precisely, but the on the ground risks to oil workers, assets, and installations are real and discernible. In post-Gaddafi Libya a number of significant risks remain but more important are the lessons that can be taken away from Libya’s revolution for better risk management by oil companies and their personnel in the future.

Since the creation in 1994 of the Partnership for Peace program, NATO has engaged many Caspian countries in the program’s defense reform activities. The result has been growing engagement between the Alliance and Caspian states which are concurrently among the world’s more important oil and gas producers. This presents a geopolitical dilemma for the Russian Federation and real problems for the Alliance and its Caspian partners where security cooperation not energy competition should dominate the agenda.

Over May 20-21 NATO Heads of State and Government will meet for their 25th annual summit in Chicago. To say that the Alliance’s plate is full is a huge understatement with Afghanistan, missile defense, and the cascading impact of the global financial crisis bearing down on member states. Addressing NATO’s future needs in an age of austerity is filtered through the concept of Smart Defense that encourages Allies to cooperate in developing, acquiring and maintaining military capabilities to meet current security problems in accordance with the new NATO strategic concept. Where energy and the security of the Alliance is concerned moving forward on introducing ‘smart energy’ is a means to achieving pragmatic and incremental progress on the 'Smart Defense' front.

In spite of steps to enhance the EU’s security of natural gas supply, an underlying weakness in this link is Russia’s inability to provide more gas on demand. Under-investment in upstream exploration and development, an opaque investment environment, and Russia’s well understood need to serve its own domestic market first were all factors which contributed to a shortage of natural gas on the European market in February 2012. Analysts have for years been warning of such a scenario taking place, but the February gas-shortage may have been the first time we’ve seen this Russian ground-hog raise its head and then disappear for another six weeks until the weather gets warmer and European demand for natural gas falls.

The Institute for the Analysis of Global Security through the Journal of Energy Security has a long history of promoting structured dialogue on key energy issues of interest to the NATO Alliance. Now, the small Baltic state of Lithuania has taken on this mantel of responsibility in its attempt to launch a Lithuanian Energy Security Center as a NATO Center of Excellence. While the process of accreditation is long, Lithuania is pushing forward movement on this process in advance of the NATO Chicago Summit in May 2012. Ambassador Audrius Brūzga, Director of Energy Security Center under the Ministry of Foreign Affairs of the Republic of Lithuania, explains the strategic role that the ESC CEO can play in NATO’s future with the eye towards opening the center in 2013.

It is often noted that today’s European Union finds its genus in the early frameworks of the European Coal and Steel Community and in the Euratom Treaty concluded to govern the peaceful use of atomic energy. Over the years there has remained however a push and pull between EU Member States over their own national energy policies and the role that the EU and its institutions play in promoting a common EU energy policy. Tensions remain today in spite of considerable EU progress in creating a common internal energy market, agreement on the importance of energy efficiency and in the large scale introduction of alternative power in the EU energy mix. The Lisbon Treaty has in particular played an important role in coalescing EU energy policy which this article explores in detail.

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